Panagiotis Dimitropoulos Department of Sport Management, University of Peloponnese
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| Activity – Based Costing Activity-based costing (ABC) is a method that calculates a more accurate product cost by identifying an organization’s major operating activities, tracing the indirect costs to those activities, and allocating activity costs to products using a cost driver that is related to the cause of the cost. For ABC product costing, managers identify and classify each activity, estimate the cost of resources for each activity, identify a cost driver for each activity and estimate the quantity of each cost driver, calculate an activity cost rate for each activity, and allocate all costs to cost objects based on the level of activity required to make the product or provide the service. Two tools –a cost hierarchy and a bill of activities help in the implementation of ABC. To create a cost hierarchy, activities are identified and classified into four levels. Unit-level activities are performed each time a unit is produced. Batch-lev- el activities are performed each time a batch of goods is produced. Product- level activities are performed to support the diversity of products in a manufacturing plant. Facility-level activities are performed to support a facility s general manufacturing process. A bill of activities is then used to compute the costs assigned to activities and the product or service unit cost (Drury 2000, Needles & Crosson Activity Based Costing was used by American industrialists, in the middles, as an efficient method of cost accounting their products, not accordingly to the volume of their production, but according to the activities needed for their production. The reason for the invention of ABC is the inefficiency of the traditional cost accounting methods in the US during the sands. As Horngren (1977), Miller & Vollman (1985) and Johnson & Kaplan ACTIVITY – BASED COSTING IN SPORT ORGANIZATIONS 19 (1987) argued, there are concealed factors that influence the common and the general industrial expenses and these needed to be distributed in abetter way in order to be audited easier, thus increasing the managerial and production efficiency. Since the beginning of the s, ABC started to become acceptable from the majority of researchers and cost accountants as a method that offers more timely and value relevant information for the factors that influence products costs, thus helping managers making rational business deci- sions. The main differences between the traditional cost accounting methodology and the ABC is in the way of distributing costs and the influence the costs have on products. In the traditional method of cost accounting the general industrial expenses are grouped and distributed in the main cost centres such as production, administration, services, research and development, and then distributed to the products. ABC on the contrary allocates general industrial expenses according to the cost drivers that connect expenses with activities and then these expenses are transported to the products according to the influence these activities have on each product. The following Figure 1 depicts the main differences between these two cost accounting procedures Download 94.33 Kb. Share with your friends:
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